1. Introduction

Congress enacted the current Bankruptcy Code, Sections 101 through 1502 of Title Eleven of the United States Code (as amended, the “Bankruptcy Code”), in 1978, and it took effect late in 1979. Many important federal environmental statutes were enacted around the same time, e.g., Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in 1980. Thus, Congress did not fully consider environmental liability schemes when it created the bankruptcy code. Many of the environmental liabilities are new with the enactment of these statutory provisions. These liabilities do not fit well into the bankruptcy framework, thus causing confusion and conflicts. Environmental statutes create liabilities that bankruptcy laws will discharge. However, some obligations that environmental laws create directly conflict with the bankruptcy policy of a “fresh start” for the debtors. For instance, the environmental concept of obligations does not necessarily fit into the Bankruptcy Code’s definition of a “claim.” An environmental liability can either be an obligation to remediate property under a consent order or injunction, which may not give rise to a claim, or an obligation to pay a third party or the government for remediation already conducted, which can give rise to a “claim." Also, it can be difficult to properly assess when an environmental claim “arises,” which directly impacts whether it will be addressed in the Debtor’s plan of reorganization or whether the Debtor will have post-petition liability regardless of the bankruptcy.

The “fresh start” concept requires that an individual debtor be discharged of those debts in which insufficient assets exist to pay all claims in a Chapter 7, and insufficient assets and income exist to pay debts through a plan of reorganization in a Chapter 13. The “fresh start” concept for corporate entities allows a company, through a Chapter 11, to be rehabilitated by discharging certain debts and paying out certain others in a plan of reorganization through “classification” of claims into different classes, each of which has a priority ranking system vis-à-vis other claims. For instance, “administrative claims,” which are those “actual and necessary” to preserve the estate, include current operating expenses of the Debtor, and are provided with the highest priority in payment. Secured Creditors are provided payments per the value of their collateral. Unsecured Creditors are provided with a percentage payment of the full claim. Finally, Equity Creditors are provided with some new reduced value to their equity. The rationale is to provide equality to classes of creditors such that each creditor in a class is treated equally or on a pro rata basis. The Bankruptcy Code also seeks to save costs and expenses in addressing a multitude of creditors and to maximize the size of the estate for the benefit of all creditors. It is necessary to determine into which of these classes an environmental obligation will be placed if it is a true bankruptcy “claim.” It is also necessary to determine if the environmental obligation might be considered a post-petition obligation that is outside the bankruptcy, and which the bankruptcy does not affect.

The primary purpose of environmental statutes, on the other hand, is to provide vehicles for remediation of contaminated property by holding a broad group of entities and individuals responsible for the remediation — including, in some instances, joint and several liability. The primary statute under which such liability is customarily assessed is the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA), which is for abandoned properties, or those in which the owner cannot afford to remediate the property. The responsibility for remediation then, often falls to those parties who: (1) arranged to have hazardous substances disposed of; (2) were generators of the waste; (3) were transporters of the waste to the site; (4) owned the site at the time of “disposal;" and (5) were operators of the site at the time of "disposal." Additionally, this liability can be “joint and several.” Liability can also be assessed under a number of other environmental statutes including: the Resource Conservation and Recovery Act (RCRA), which is designed for the reduction of the manufacture or generation of hazardous waste from existing facilities and provides a comprehensive scheme for disposal of hazardous substances; the Clean Water Act (CWA), which sets effluent limitations for different types of pollution sources; and the Clean Air Act (CAA), which sets the ambient air quality standards that must be achieved by each point source for specified pollutants. Other federal statutes impose liability for cleanup of contaminated property, as well as a variety of comparable state statutes and common law liability impose liability for property damage.